As housing affordability erodes, millennials forced to get creative to buy that first home

It was the workshop space that drew Patrick Howard toward his new Cabbagetown home in downtown Toronto.

The 26-year-old financial adviser recently purchased a two-bedroom, two-bathroom condo, and said the possibility of doing his own interior decorating and renovations was a major selling point when selecting the property.

“I personally take a lot of pride in ownership, and I like to do a little bit of interior decorating and stuff like that, which is tough to do in a rental or when you’re living at home,” he said.

With a little help from his parents and a home equity line of credit, Howard said he plans to be in this home for the long term, and looks forward to making it his own.

Buying a home is apparently a process many young people still consider worthwhile despite being forced to get creative to afford one, whether that means finding different ways to make down payments, settling for alternative housing options or using creative ways to stand out when there’s lots of competing interest on a place.

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Half of millennials intend to enter the housing market within the next two years, up from 39 per cent last April, according to a recent Royal Bank of Canada Home Ownership poll. In their favour is that they reported less economic anxiety and concerns about employment than in past years.

“First-time homebuyers, in particular, are seeing homes as still a good investment,” said Nicole Wells, vice-president of home equity financing at Royal Bank of Canada. “They’re also getting older, they don’t want to have children (while in the) basement of their parents’ homes.”

Tim Syrianos, president of the Toronto Real Estate Board, said seeing what homeownership has done for their parents is part of the reason why there has been an increase in buying intentions.

“Millennials come from parents who in many cases own (homes) already, so they see the benefits of what ownership has done to their own personal life,” he said. “They see that as, why wait when things may become more expensive? Why not do it now if they can?”

Tom Storey, a Royal LePage realtor whose clientele consists mainly of first-time home-buying millennials, agrees that the desire to emulate their parents has spurred millennials into wanting homes of their own.

“The eagerness is just looking at where their parents are now in their lives based on the property decisions they made earlier,” he said.

Storey has noticed millennials will usually make significant sacrifices to buy a home, such as taking far less space than desired if a home is in a location close to their workplace or public transit.

“The things that are most valuable to them are slightly different than the buyer maybe 20 years ago,” he said.

Storey also notes that although first-time buyers are usually capable of covering costs such as mortgages and maintenance costs, making that initial down payment is still often out of reach.

That’s not a new challenge, but the increase in housing prices means young buyers are borrowing ever more money, often from their parents, Storey said.

The decrease in home affordability has hit millennials hard, especially in expensive markets such as Vancouver and Toronto, where average home prices are $1,071,800 and $751,700, respectively, according to Zoocasa.

Condos and office towers in downtown Vancouver.

New federal mortgage regulations introduced by Canada’s banking regulator at the beginning of the year added another challenge to new buyers. Under the new rules, even buyers with a 20 per cent down payment have to pass a stress test and qualify at a higher interest rate.

The change was one of the factors that pushed Howard to get help from his parents.

“It’s the first-time buyers who don’t have a lot of money saved up for a down payment,” he said. “They’re generally younger and haven’t been working as long or have spent some years paying back student loans, and have only had a few years to save up.”

Storey said he has seen more young buyers stay at home longer to save up if they do not or cannot borrow from their parents, rather than get financing through loans or lines of credit.

But if staying at home is not an option, millennials have become more “creative” in trying to enter the market, Syrianos notes, exploring solutions such as pooling resources for shared accommodations. In other cases, Storey said, buyers are cutting down their expectations, such as accepting longer commutes from less expensive areas.

Another creative touch that Storey has seen when multiple bidders are competing for a home is to include a personal letter along with an offer.

“I’ve sold property to buyers where there’s been more than five or six offers who included a letter with a picture of them showing who they are, and that they want to build a life here and a family here,” he said. “They’re not just going to flip this house, they’re actually going to live here.”

Storey said it works because some sellers don’t necessarily pick the highest offer. “If you pull that emotional heartstring in the seller, that could work to your advantage as well.”

Even in more challenging marketplaces, some have found their way without dipping into the bank of Mom and Dad.

Jordan Whelan recently closed a deal on a loft in Toronto’s Leslieville neighbourhood after looking at 10 to 15 properties. The 31-year-old entrepreneur said the “soul” of the loft is what stood out to him and that he found the property unique and different than where he’s lived in the past.

“When something has ‘soul’ from an interior design perspective, there’s a lot of opportunities with what you can do with the space, rather than if something’s conventional and has that clinical look to it,” he said.

Jordan Whelan recently closed a deal on a loft in Toronto’s Leslieville neighbourhood after looking at 10 to 15 properties.

Whelan did not receive family help with the down payment, which made getting it together a challenge since he has a single income.

“I paid for this thing for basically a decade,” he said.

Whelan said the biggest things he did was to find new ways to make money and avoid dipping into his savings whenever possible. It was a combination of frugality and “sweat equity,” he said.

Looking at the experience of other first-time homebuyers, Whelan said it’s become nearly “impossible” to afford property in Toronto with a single income without parental help, and he has seen others struggle because of this.

Howard noted similar experiences among the buyers he knows.

“Every (buyer) I’ve run into who’s under the age of 30 has needed some sort of assistance,” he said. “Of course, there are a couple of exceptions, but, generally, that’s what I’ve run into.”

Howard said he would have likely continued to rent and keep building up his savings if he had missed out on his recent purchase, rather than buy elsewhere.

“I knew Toronto would be expensive to buy in,” he said. “But at the end of the day, it’s where I want to work, it’s where I want to live.”